Breach of Contract

Seeking Legal Advice for a Business Contract Breach

When another party fails to honour a business agreement, the first questions are practical. What can we recover? How quickly must we act? What should we do today? This guide explains the main remedies for breach of contract in Ontario, what each can and cannot achieve, and how to document and respond to a breach.

What Are the Remedies for Breach of Contract in Ontario?

The most common remedy is damages: a payment of money meant to put you in the position you would have been in if the contract had been performed. In limited situations, a court may instead order the other side to perform (specific performance), stop certain conduct (an injunction), or unwind the deal (rescission).

No remedy is automatic. The result depends on the contract’s wording, the seriousness of the breach, the evidence of your loss and how promptly you act. A breach also does not always lead to compensation. If you cannot prove a loss caused by the breach, a court may award little or nothing.

What Is a Breach of Contract?

A breach of contract occurs when a party fails, without a lawful excuse, to do what a legally binding agreement requires. That can mean not performing at all, performing late, performing defectively or refusing to perform. Not every breach is treated the same. The type of breach affects whether you can end the contract or only claim damages.

Minor Breach

A material breach involves a small portion of the contract, without affecting the primary purpose of the contract, for example, a one-day delay in delivery without causing any serious damage. Compensation can be claimed for any proven loss suffered but the entire contract cannot be voided.

Material (repudiatory) Breach

Material breach cuts to the heart of the bargain and robs you of essentially all the benefits that you expected under the bargain: Guarantee Company of North America v. Gordon Capital Corp., [1999] 3 S.C.R. 423. However, terminate only after careful consideration because terminating the contract in an improper manner can actually constitute a breach itself.

Anticipatory Breach

Anticipatory repudiation is said to happen when a party gives notice, prior to the performance period, that it will be unable to fulfill its obligations. It happens when a supplier sends an email two weeks prior to the scheduled delivery, informing the customer that they will not be able to deliver at all.

A Note on “Fundamental Breach”

You may still see this phrase. In Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, the Supreme Court of Canada set aside fundamental breach as a rule for avoiding exclusion clauses. Courts now ask whether the clause applies to the breach, whether it was unconscionable when the contract was made, and whether public policy overrides it.

What Must You Prove in a Breach of Contract Claim?

To succeed, you generally need to establish five things.

1. A valid contract. This requires an offer, acceptance, consideration (something of value exchanged) and an intention to create legal relations. A contract can be written, oral or implied by conduct, but written agreements are far easier to prove.
2. Clear obligations. Courts read contract wording in light of the surrounding circumstances known to the parties: Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53. “Delivery within 10 business days” is easier to enforce than “prompt delivery”.
3. A failure to perform. The other party did not perform, performed late, performed defectively or refused to perform.
4. No legal excuse. Examples include frustration (an unforeseen event that makes performance radically different from what was agreed) and force majeure clauses (terms that excuse performance during defined extraordinary events). The exact wording of the clause matters.
5. Loss caused by the breach. You must prove what you lost and that the breach caused it.

In Ontario, there is an expectation of honest performance too. According to Bhasin v. Hrynew, 2014 SCC 71, the parties are not supposed to lie or deceive each other in relation to any issue connected to the performance of the contract. C.M. Callow Inc. v. Zollinger, 2020 SCC 45 made it clear that this may consist of half-truths or misleading silence, while Wastech Services Ltd. v. Greater Vancouver Sewerage and Drainage District, 2021 SCC 7 says the same for discretion in contract.

Proof of the breach of the duty of honest performance does not mark the end of the story either. As per Bhatnagar v. Cresco Labs Inc., 2023 ONCA 401, a breach of the duty of honest performance does not lead to a presumption of loss. It is still on you to prove the loss.

How Ontario Courts Approach Each Remedy

Damages

Pecuniary damages is the primary form of compensation. Most courts grant damages in the form of expectation damages, which make you whole as if the contract had been honoured. In case of non-performance by the supplier, you go on to purchase substitute goods at a higher price; you can be compensated for the price differential and any other associated expenses. Reliance damages are awarded as compensation for your losses based on the contract.

Indirect losses, such as profit from a customer contract you lost because of the breach, are recoverable only if they were within the reasonable contemplation of both parties when the contract was made: Fidler v. Sun Life Assurance Co. of Canada, 2006 SCC 30. You must also take reasonable steps to limit your loss, known as mitigation. Failing to do so can reduce what you recover: Southcott Estates Inc. v. Toronto Catholic District School Board, 2012 SCC 51.

Damages are compensation; they are not punishment. Punitive damages in a contractual dispute are uncommon. There must be a very outrageous act on the part of the defendant and, usually, another wrongful act: Whiten v. Pilot Insurance Company, 2002 SCC 18.

Specific performance

Specific performance is a court order requiring a party to do what it promised. It is the exception, not the rule. It is available mainly where damages would not adequately compensate you, such as the sale of unique property. Ontario courts do not presume that land is unique: Semelhago v. Paramadevan, [1996] 2 S.C.R. 415. A property bought purely as an investment may not qualify: Southcott.

Whereas the party that has sought specific performance must have met all of its requirements, it was held in the case of Ontario Inc. v Ontario H Limited Partnership, 2024 ONCA 775, that the tenant had validly exercised his/her option to buy the two properties and had tendered part of the total price for the same.

Injunctions

Injunction is an order made by a court to compel someone either to do or to refrain from doing something. Typical examples include restraining the misuse of confidential information or the enforcement of a reasonable restrictive covenant. For an injunction to be granted prior to a hearing on the matter, one needs to demonstrate: there is an arguable case, there is irreparable injury (the injury that cannot be remedied by money) and that it is more convenient for the balance of convenience to be in your favour: RJR-MacDonald Inc. v. Canada (Attorney General), [1994] 1 S.C.R. 311; Courts of Justice Act, s. 101.

Rescission and Termination

Rescission involves cancellation of the contract and attempts to bring both parties back to their pre-contract position. It is mostly associated with misrepresentation, mistakes, and duress. Where there is a substantial breach of contract, termination would be the usual approach. This ensures that you still have claims for damages.

Quantum Meruit

Quantum meruit is Latin for “as much as he has deserved”. It allows recovery of the reasonable value of work or goods supplied when there is no enforceable contract price to rely on, for example where a contract is unenforceable or you were prevented from finishing the work. It typically yields reasonable value, not expected profit.

Liquidated damages and penalty clauses

It is common practice for most commercial contracts to determine the damages before the contract comes into effect. In the case of Ontario courts, such provisions are usually enforced by courts unless they are considered to be penalty, which means the amount determined under the provision is unreasonable or extravagant in comparison to the probable loss: Peachtree II Associates – Dallas L.P. v. 857486 Ontario Ltd., 2005, 76 O.R. (3d) 362 (C.A.).

Practical Examples for Businesses

These are simplified illustrations, not predictions of outcome.

Delayed or inferior delivery. The supplier delivers faulty parts. The manufacturer has to purchase substitutes from another source at an increased cost. Such additional cost can be claimed as damages, provided that the manufacturer has done what is reasonable to minimize its losses.

Project for software or services. The vendor fails to meet various milestones while custom building. The contract mandates that there should be written notice and 30 days to cure. Failure to do so can undermine the claim, hence making the notice as important as the breach itself. Service and SaaS agreements are well-crafted for these instances.

Misuse of confidential information. Your price and consumer information is exploited by a previous distributor. In cases where damages may not fully compensate for the damage done, an injunction can also be requested.

Unpaid invoices. A client stops paying for completed work. A demand letter often comes first. If the claim is $50,000 or less, Small Claims Court may be an option.

How Long Do You Have to Bring a Claim?

In Ontario, the basic limitation period is two years from the day the claim was discovered, or should reasonably have been discovered: Limitations Act, 2002, ss. 4 and 5. There is also a 15-year ultimate limitation period (s. 15). In business agreements, parties may be able to vary these periods by contract (s. 22), so check your agreement.

A claim up to $50,000, without any interest and costs, can be started at Small Claims Court. This limit was raised from $35,000 as of October 1, 2025. All the disputes above this amount would be dealt with at Superior Court of Justice. Some contracts may demand a mediation procedure before any lawsuit.

Checklist: How to Document and Respond to a Breach of Contract

Document the Breach

1. Gather the paper trail. Collect the contract, amendments, purchase orders, statements of work and related correspondence.
2. Preserve evidence. Preserve all email correspondence, text messages, call sheets, invoices, delivery receipts, and pictures. Turn off auto-deletes.
3. Create a timeline. Record promises made, when they should have been fulfilled, and what has been stated.
4. Quantify your loss. Support it with records such as invoices and replacement quotes. Separate direct costs from indirect losses.
5. Record mitigation. Note each step you take to reduce your loss.

Respond to the Breach

1. Examine the contract. Check notice, cure period, termination, limitation of liability, applicable law and dispute resolution clauses. A contract review can help.
2. Keep performing your own obligations. Do not stop performing in frustration unless you have advice to do so.
3. Provide written notice. Use the form required by the contract, and stick to facts, not allegations.
4. Don’t terminate or withhold payment too soon. Make sure first that you’re on firm ground.
   3. Diary deadlines. Note any limitations periods as well as any contractual deadlines.
5. Keep communications careful. Keep factual and in writing, avoid admissions and mark settlement discussions “without prejudice”.
6. Get legal advice early. Do this before sending a demand letter or starting a claim.

Get Early Advice from a Breach of Contract Lawyer

Legal advice in early stages will help you evaluate your choices before anything gets cemented. You should consider a lawyer specializing in breach of contract to look into the contract and evidence that you have to evaluate if the breach is material or not. This way, you can also learn about timelines involved and what sort of remedies will be available to you. There may be some risk if you act too soon. There may be even more risk if you act too late.

Pacific Legal assists businesses with contract disputes, including supply, services, technology, shareholder and commercial lease matters. Our contract dispute lawyers can review your position, advise concerning next steps and act for you in negotiations, alternative dispute resolution and court. If you are also reviewing your commercial agreements, see our guides to commercial contracts and supplier contracts.

If you are considering a claim, or have received one, book a free 15-minute consultation to discuss your options.

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